David Ramsey's Weblog

February 6, 2010

The Downturn Appears Undeway

Filed under: Economics and Financial — David Ramsey @ 12:04 am
Tags: ,

As I noted at the end of December, 2009, there is a rather large iceberg out there waiting for the entire global economy. Great efforts were made by various players to prop up the market to and through the New Year. Those efforts succeeded, allowing Wall Street to claim credit (and bonuses) for a “good” year, despite being still down almost 30% from its 2007 peak. And yet the market is now down about 260 points for this week and about 700 points since its most recent peak.

Meanwhile reports of cities and counties facing bankruptcy continue to grow. Tax revenues are collapsing, thus tax based spending must collapse as well. But rather than face that, the politicians want to impose more taxes, fees, and costs on private enterprise to carry the unproductive public sector. Any notion of cutting costs by cutting programs or asking public sector employees to take pay and benefits cuts are met with fierce opposition. Yet what can be the only result of this? Bankruptcy.

You can count on many cities and states reaching bankrupt conditions, even if bankruptcy itself is never formally filed. Indeed, if you define bankruptcy as the inability to pay your obligations, many states and cities are already there.

Couple this with a continually worsening employment situation. Yes, I know that the BLS report said that unemployment dropped by 0.3 percent. This was accomplished by removing 1.36 million people from the workforce labor pool, even though these 1.36 million people remain unemployed. Indeed, the actual unemployment picture is closer to the oft-ignored “U-6” line item, now in table A-15 of the monthly BLS report. (Note that it used to be table A-12 but 3 new tables were added this month.) And that U-6 number is now a whopping 18%. Additionally, persons on the government SNAP program (formerly called food stamps) exceeds 36 million, almost 12% of the total population.

There currently are absolutely no signs of economic recovery anywhere. All positive GDP numbers are, in fact, a byproduct of stimulus spending which is now coming to an end. 2010 promises to be a terrible year for the stock market but an even worse year for the average man or woman in the United States.


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